Macroeconomic objectives

The six objectives

1. Economic growth: sustained growth of real GDP, close to the trend rate.

2. Low and stable inflation: many countries set an inflation target. The UK government sets the Bank of England a target of keeping inflation at 2% (Bank of England, 2026).

3. Low unemployment: as close to full employment as possible.

4. Balance of payments equilibrium on the current account: avoiding large persistent deficits or surpluses.

5. A balanced government budget: tax revenue roughly equal to government spending over the cycle, to keep debt under control.

6. Greater income equality: a fairer distribution of income, through taxes, benefits and public services.

Why each matters

• Growth raises living standards and revenue.
• Low, stable inflation protects real incomes and helps firms plan and invest. A target slightly above zero gives a buffer against deflation.
• Unemployment wastes resources and causes social costs.
• A persistent current account deficit must be financed by borrowing or selling assets.
• Large budget deficits add to national debt and interest payments.
• High inequality can harm social cohesion and the poorest households' health and education.

Measuring performance

Growth: % change in real GDP. Inflation: CPI. Unemployment: ILO rate. Current account: balance as a % of GDP. Budget: deficit as a % of GDP. Inequality: measures such as the share of income going to the richest 10% or the Gini coefficient.

Worked example

A government's budget shows tax revenue of $380 bn and spending of $410 bn, with GDP of $1,500 bn. Find the budget balance as a % of GDP.

1. Balance = 380 - 410 = -30
2. As a % of GDP: -30 / 1500 x 100 = -2%

Answer: A deficit of 2% of GDP

Check yourself

1. Tax revenue is $250 bn and government spending is $280 bn. Find the budget balance in $ bn (negative for a deficit).
   Show answer

   -30 bn. 250 - 280 = -$30 bn, a deficit.

2. A budget deficit of $24 bn occurs in an economy with GDP of $800 bn. Express it as a % of GDP.
   Show answer

   3 %. 24 / 800 x 100 = 3%.

3. What inflation target does the UK government set the Bank of England?
   • 0%
   • 2%
   • 5%
   • 10%
   Show answer

   2%. The Bank of England states that the government sets it a target of keeping inflation at 2%.

4. Which is a macroeconomic objective named in the Unit 2 specification?
   • Maximising the price of shares
   • A fixed exchange rate
   • Greater income equality
   • Zero imports
   Show answer

   Greater income equality. The six objectives are growth, low inflation, low unemployment, current account equilibrium, a balanced budget and greater income equality.

5. Why do central banks usually target low positive inflation rather than zero?
   • To give a buffer against deflation
   • To make exports more expensive
   • Because zero inflation cannot be measured
   • To increase the real value of debt
   Show answer

   To give a buffer against deflation. A small positive rate lowers the risk of falling into harmful deflation.

6. Why might a large, persistent current account deficit be a concern?
   • It always causes deflation
   • It means exports are too high
   • It must be financed by borrowing from abroad or selling assets
   • It reduces imports
   Show answer

   It must be financed by borrowing from abroad or selling assets. Financing a deficit builds up foreign liabilities.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification, Issue 2 (June 2018)
• Bank of England: Inflation and interest rates FAQs (updated 4 February 2026)

Last updated 8 November 2026. Spotted a mistake? Tell us.